The News
As President-elect Donald Trump’s proposed tariffs loom over China’s flagging economy, Chinese firms are ramping up spending on research and manufacturing overseas.
Chinese investment in non-financial assets such as factories hit a record in the year to June. Meanwhile, tech giant Huawei has set up academies in 110 countries to train engineers, Nikkei Asia reported Tuesday, as it pursues an ambitious global expansion despite a US crackdown.
But China’s moves to set up shop abroad have led recipient economies to complain they don’t benefit from the investment, while Beijing fears that domestic industries are being hollowed out.
SIGNALS
Wave of offshoring sparks fears at home and abroad
Tariffs imposed by Donald Trump on goods made in China during his first term as president led manufacturers increasingly to move factories overseas. However, the wave of offshoring has sowed dissatisfaction, The Economist reported. Chinese firms tend to import their own workers for factories, depriving recipient economies of the benefits of hiring local staff; they decline to share technology to avoid giving other countries a competitive edge, and in many cases, dominate local competition. But Beijing isn’t happy either: It fears its domestic industries will suffer from production moving overseas, the magazine reported. President Xi Jinping would prefer low-value industries instead be used to boost poorer rural parts of China, which would also give Beijing tighter control over its supply chains.
Major Chinese companies are ramping up research spending
Last year saw record research and development spending by major Chinese companies as they raced to circumvent US sanctions on key technological components like semiconductors, with the sums rapidly catching up to those invested by their US counterparts. Smartphone maker Huawei has pledged to allocate 10% to 20% of its sales revenue towards innovation, while in May, Beijing launched a $47.5 billion state-backed investment fund for chips. Analysts told CNBC that the spending spike suggests Chinese industry “doesn’t think they have a viable domestic alternative” to Western sanctions, and that “throwing money at these problems will help, but only so much.”
Chinese firms eye Hong Kong for new IPO listings
In a marked change to China’s previous efforts to limit offshore fundraising, the country’s regulators are now pushing global banks like JPMorgan to expedite offshore listings of Chinese firms in Hong Kong, in a bid to stimulate China’s ailing economy, Reuters reported. As tensions with the US deter Chinese firms from going public in New York, Hong Kong’s stock exchange is expected to see an IPO rebound, with 90 active applications in the pipeline. International financial institutions and businesses have been retreating from Hong Kong, leaving a void in the financial hub that China is happy to fill, The Wall Street Journal reported. “It’s still a world-class city,” the head of investment banking at one major bank told the newspaper, “But I don’t think we can call it a world city anymore.”